Research Update: U.K.-Based Aerospace And Defense Company BAE Systems PLC Upgraded To 'BBB+'; Outlook Stable

U.K.-based aerospace and defense (A&D) company BAE Systems PLC (BAE) continues to grow its top line, sustain profitability, and generate solid free operating cash flow (FOCF), while also reducing S&P Global Ratings-adjusted debt. We expect this trend to carry on through 2022 and 2023, supported by a healthy level of backlog and order intake. As a result, we believe that adjusted leverage will reduce to comfortably below 2x and funds from operations (FFO) to debt will remain sustainably above 45% over our two-year rating horizon. FOCF should be more than £4 billion cumulatively over the next three years, in line with management guidance, and BAE should be able to comfortably fund bolt-on mergers and acquisitions (M&A) and a progressive dividend

...- U.K.-based aerospace and defense (A&D) company BAE Systems PLC (BAE) continues to grow its top line, sustain profitability, and generate solid free operating cash flow (FOCF), while also reducing S&P Global Ratings-adjusted debt. - We expect this trend to carry on through 2022 and 2023, supported by a healthy level of backlog and order intake. As a result, we believe that adjusted leverage will reduce to comfortably below 2x and funds from operations (FFO) to debt will remain sustainably above 45% over our two-year rating horizon. - FOCF should be more than ú4 billion cumulatively over the next three years, in line with management guidance, and BAE should be able to comfortably fund bolt-on mergers and acquisitions (M&A) and a progressive dividend policy while maintaining strong credit metrics. - We therefore raised our issuer and issue ratings on BAE to '###+' from '###' and affirmed our 'A-2' short-term rating. - The stable outlook reflects our expectations that BAE will grow revenue...

Research Update